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27/04/2017

Mobile handsets likely to cost 10 percent more post-GST

The
government is mulling additional customs duty on imported mobile handsets,
which could make smartphones dearer by up to 10 per cent.

The
government has set up an inter-ministerial committee to set rates of customs
duty on finished mobile handsets once the goods and services tax (GST) becomes
effective. “The
initiative to impose an additional 5-10 per cent customs duty on imported handsets
is a welcome step. It will motivate local manufacturers to align themselves to
the government’s ‘Make in India’ vision," said Manish Sharma, president of
the Consumer Electronics and Appliances Manufacturers Association.

The
move, aimed at protecting local manufacturers, could lead to price hikes
because nearly 30 per cent of the 263 million handsets sold in the country last
year were imported from China, Taiwan and Vietnam. Local
manufacturers have lobbied the government for making imports costlier because
the growing influence of Chinese companies is hurting their sales.

The
majority of Indian vendors import handsets and are dependent on component
manufactures in China, Taiwan and Vietnam. Major
Indian players Micromax, Lava and Karbonn do not make it to the top slots of
original equipment manufacturers. They are still dependent on third-party
manufacturers for finished handsets. Major
foreign players Samsung, Xiaomi, Vivo, Oppo and Lenovo, on the other hand, have
set up plants in India and source most components locally.

“The
customs duty will not affect us. We source all our handsets from local
manufacturers. It will provide a level playing field for high-end handset
brands like ours. Smaller players may be hit," said Vikas Agarwal, general
manager, OnePlus India. “Higher
import duties will provide a breather to players which were under pressure from
Chinese companies. It will give them space to raise prices, leading to price
hikes across the spectrum," an analyst said.

Industry
executives said since India was a key market for Chinese handset manufacturers,
the authorities there would most likely offer incentives to companies affected
by the higher customs duty. The
global Information Technology Agreement (ITA) mandates duty-free imports of
many electronic items. However, India has refrained from signing ITA-2, which
covers newer technology.

“The
government is seeking a solution where it does not violate the ITA but still
manages to protect local firms," said Suresh Nandlal Rohira, partner, Grant
Thornton India.